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College tuition insurance for your child? It depends, experts say

Sandra Rizkallah feared that her daughter's long-term illness could prevent her from completing her freshman year at Landmark College in Putney, Vt. -- a school where tuition cost $40,000 annually, not including room and board.

"I worried about her medical history and I worried about the expense," said Rizkallah, a Boston-area mother. "She had been accepted into an expensive school, she wanted to pursue an education, and she had health issues. We wanted so much for her to be able to go to school."

Rizkallah joined a growing number of parents in the United States taking out insurance to cover loss of tuition in the event their children become sick and drop out of expensive colleges or prep schools, experts say.

Thanks to that insurance, Rizkallah recovered a portion of her daughter's tuition last year when her daughter, now 23, returned home ill.

“It's definitely gaining traction with families," said John T. Fees, co-founder and CEO of the Next Generation Insurance Group, creators of GradGuard, a tuition insurance program. The company has 200,000 families enrolled in a tuition insurance coverage plan, he said. "Twenty years ago, college was affordable and you didn’t have to worry about how to pay (for tuition) ... Parents need to know they will be able to recover from a financial loss, if it were to occur."

But some experts say most families don't need such insurance, which can add hundreds of dollars in costs onto an already expensive education. 

"I don’t recommend it," said Mark Kantrowitz, publisher of FinAid.org, a free online resource about scholarships and financial aid. But he added that "it is a personal decision and depends on whether they need the reassurance."

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More families are being encouraged by colleges and private schools  to sign up for tuition refund or reimbursement policies touted by private insurance companies and private schools, insurance and financial experts say. Typical coverage is about $15,000 a year, Fees said. According to GradGuard, general coverage includes:

  • Medical Disability: "If a student has to withdraw due to their accidental death, verified illness or an unforeseen physical disability (as defined by a physician) incurred after the policy goes into effect, the Plan will reimburse 100 percent of covered expenses up to the policy limits. If a physician indicates that the medical disability is due to emotional, nervous, or mental disorders, the Plan will also reimburse 100 percent of covered expenses.”
  • Death of a tuition payer: "If a student has to completely withdraw due to the death of a tuition payer, the plan will pay 100 percent of covered fees."

But experts caution that tuition insurance typically doesn't cover costs if a student decides to just up and quit school, gets kicked out or is homesick.

'Assurance with insurance'
A.W.G. Dewar was the first tuition refund insurance company in the United States and has been providing coverage since 1930, according to the Insurance Information Institute in New York. It claims it provides up to 100 percent coverage for medically necessary withdrawals at more than 180 colleges and 1,200 private elementary and secondary schools. It is now part of One Beacon Insurance Group Ltd., institute officials say. Sallie Mae, the nation’s largest student lender, also provides tuition coverage, according to the institute.

While no exact numbers are available of how many people have opted for tuition insurance, college administrators say more parents are requesting information on it.

"College is a big investment and for some parents, just knowing they can gain some assurance with insurance makes them feel more comfortable," said Teri L. Blanchard, associate vice president for finance at Kenyon College in Gambier, Ohio, where about 10 percent of the 1,600 students enrolled at the private liberal arts school purchased insurance last year. Blanchard said she even bought insurance for her son 15 years ago. "It made sense at the time."

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She said administrators at Kenyon College also offer their own tuition insurance, charging $199 per semester to cover the year's tuition. This school year, that's nearly $43,000.

Most colleges and universities have refund policies. For instance, at Fordham University, near the Belmont neighborhood of the Bronx, N.Y., students are able to get back their tuition, about $40,000 a year, if they withdraw by the second week of the semester, according to the university. Private schools throughout the U.S. require some form of insurance coverage, Fees said.

'A personal decision'
Skeptics urge parents to review the insurance company's refund policy before buying.

Mark Kantrowitz.

"It’s a specialized insurance, and people have to ask themselves: ‘Do I really need it?'” said Mark Kantrowitz, publisher of FinAid.org, a free online resource about scholarships and financial aid. "A typical college student is going to be relatively healthy, and tuition insurance is often not financially worthwhile. Tuition refund insurance is more likely to be of interest to parents whose children are attending more expensive colleges."

Kantrowitz said tuition refund insurance typically costs 1 percent to 5 percent of the face value of the coverage per year, ranging from $100 to $1,000 depending on the college's costs and claim history.

Margaret McBurney of Kensington, Md., said she was among the parents who needed "peace of mind." She signed up with GradGuard a year ago after her third child headed off to college on the East Coast.

“I had already spent a large of amount of tuition on my children, and I heard about it and I thought it sounded like a good idea,” said McBurney. She said she paid about $12,000 a semester in tuition for her daughter, who is now 21. For a $25,000 insurance policy, she said she paid $48 a month for a year. “I kind of wished that I had done it earlier for my peace of mind.”

“As it turned out, my student became ill in college,” McBurney said. She described the reimbursement process as “relatively simple and once the college provided the documents the tuition was reimbursed.”

Do you have an education-related story or topic you'd like to share? Contact NBC News' Sevil Omer at sevil.omer@msnbc.com.

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